Making Cents

It's a Long, Long Way From May to December...

When it comes to affairs of the heart, age may play a small part, but one of the realities of a May-September relationship is financial planning.

If you're in a wide age-gap marriage, it's probable that you have children from a previous relationship.  You want to provide for their futures while at the same time ensure the financial security of your new, younger spouse. A few personal aspects must be taken into consideration - namely life expectancy, health, children and retirement plans.

In a nutshell, your younger spouse's life expectancy is likely twice as long as yours; it's probable that your health will decline first; chances are you want to leave some of your estate to your children; and you need to consider the financial ramifications of your younger partner retiring when you do. Remember, if your 40-something spouse retires 20 years early, the impact will be felt on your household income, future Social Security benefits and retirement plan contributions.

Those are the basic issues. Here are a few options to assist with the financial security of your younger spouse, children from a previous marriage and perhaps offspring from this current union.

Tax-deferred accounts, like a Roth IRA or Rollover IRA, make good sense for your spouse's financial future. A Roth IRA allows you to contribute at any age while you're earning income and lets the money grow until you take a distribution. A Rollover IRA is a regular IRA comprised of rolled-over retirement assets. Minimum distributions begin at age 70½, but if your spouse is significantly younger than you, the withdrawal period can be stretched over many years.

Having adequate life insurance coverage will not only assist a younger spouse in the event of a partner's death, it can also help provide for children. Don't take this suggestion lightly. Obtain a policy early in the relationship before either of you becomes uninsurable.

Look into long-term care insurance. The annual cost may be several thousand dollars, but that sure beats what you will face if stricken with an extended infirmity.

If you are not married, think seriously about a prenuptial agreement.

Also, make sure that you have a current estate plan that includes a trust or two. Assets held in trust can not be challenged by the courts and you can select an independent trustee to take the heat off of your spouse or children, depending on who may feel slighted.

Before deciding which measures best fit your needs have a heart-to-heart talk about your financial situation and investment objectives. Love may know no bounds, but funds are not without their limits.

Money: The Green-Backed Monster

Money is probably the most common issue over which newly married and divorcing couples argue. Is one a “spender” and one a “saver”? But, with a few guidelines you and your spouse can tame that monster. 

First, keep the lines of communication open by having regular conversations about income, expenses, budget and goals - and keep it honest.  I know the goal here is to try to avoid an argument, but if you're spending more than your partner knows about, this is the time to fess up.

And if you find you don't know where to begin with these discussions or always end up in a shouting match, then consider a couple of sessions with a professional financial planner who can help you get a handle on what you're doing right and what you may be able to do better.

In addition to a joint account that can be drawn upon for basic expenses, such as rent, utilities and food, create separate accounts for individual personal expenses. Having an account with maybe a few hundred bucks that you can spend any way you want can go a long way toward decreasing arguments about “foolish” expenditures.

You need to develop and be good about following a system of tracking expenses. Be good record keepers.  It's the only way you can get a clear picture of what's going out against what's coming in. Know what your standard monthly outlays are and then keep a close eye on those extras that may be impeding your ability to save - or even just make ends meet. Consider the use of simple software like Quicken to help with this bookkeeping.

If you are in over your head, then handle it as a united front. It doesn't matter who ran up the bills; both your credit ratings will get a beating if you can't make payment deadlines. Living without debt is the greatest liberator of all. Granted, that new plasma TV with the 52-inch screen may have you wanting to reach for your credit card, but if you can't pay it off within 30 days, just walk on by the display.

Make it a point to save a certain percentage of your combined income.  Having a reserve is the only way to meet emergency expenses that are bound to crop up. It can also be the foundation for other savings programs, like a college fund or retirement account.